Safeguarding the Value of Money: Some Basic Institutional Solutions
This chapter will complete our theory of the currency order in the simplest possible manner. We shall discuss the last point of the elementary currency order, namely the regulation of the supply of the means of payment, and we shall do this on the basis of the stationary overlapping generations model with cash balances which we have developed in the preceding chapter. We will do this for the two basic types of currency orders, the commodity and the paper standard, illustrated by the example of a redeemable and a non-redeemable paper currency, for the case of one currency and of two currencies (of a “national” and an “international” currency order). Each currency community has a central agent, the central bank. There are no other banks or financial intermediaries. We shall introduce them in the next chapter.
KeywordsDepression Europe Petroleum Income Expense
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